A gathering in Piazza San Marco, Venice.
These seafaring Phoenicians were the first traders, selling purple dye to four corners of the world (as in the Arabian Night and the Bible) and they also invented the alphabet. Subsequently, through trade with these Phoenicians, the Jews invented the Hebrew scripts, which are mostly consonantal except for aleph and vav, the latter serving not only as a consonant (v) but also as an indeterminate vowel (o or u). They had a trade monopoly, shipping goods from one location to another in the Meditteranean Sea. (Other races did not have the navigation skills then.) |
Many archeologists believe that Cretans left the island and migrated to Lebanon. (The Peace Encyclopedia). Cretan murals are found in Israel, Lebanon and Egypt. "Many terms for the Land exist in other languages. The English call it "Palestine", and the Germans "Palastina", having adopted the name through the course of generations from the Greek and Roman inhabitants of the Mediterranean coast. As seagoing peoples, the Greeks and Romans first discovered the Land of Israel through direct contact with its Philistine inhabitants who according to the Old Testament (see Amos 9:7; Jeremiah 47:4; Deuteronomy 2:23), came from Caphtor, which may probably be identified with Crete. A Pelasgian origin was also suggested, but modern scholars believe that the Philistines, undoubtedly immigrants, came from Crete." |
 A plausible scene in the Palace of Knossos, 2000 - 1380 BC, a modern painting in Knossos, Crete, based on the surviving columns and artifacts. The palace was a labyrinth, and new comers got lost in the palace. The rosettes are the flowers of the tree of life. |
 A fragment of ceiling, which appears in the the painting on the left. The rosettes appear on the ceiling again. |
 This jar is evidence that Cretans were seafarers.Octopi appear in many jars. |
 Men, these columns are about 4000 years old. These architectural styles are copied by the Western people evenr since. |
 A Minoan larnax (bathtub). It appears our bathtubs were an idea borrowed from Cretans. Crete was plumbers' paradise. Their houses had fresh water indoor plumbing. The diameter of terracotta drain pipes were 4 - 6 inches. |
Here is Homer's description of Circe's servants preparing a bath for
Odysseus: "the fourth maid fetched water and lit up a great fire
under the big cauldron so that the water grew warm. When the bright copper
was boiling, she sat me down in a bath and washed me with water from the
great cauldron mixed with cold to a comfortable heat, sluicing my head
and my shoulders until all the painful weariness was gone from my limbs." |
 Lustral basin for purification. Greek bath was for ritual purification. |
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Assumptions
9. Balance of Trade and No Leakeages
zi + z*i = 0. (No leakages. Nothing is lost in transit)
Homothetic preferences implies: As income increases consumption increases proportionately, i.e., the income elasticity of demand for each good = 1.
Income consumption curve is a ray from the origin.
Figure 21. Homothetic preferences
The HO Theorem If assumptions (1) - (10) are satisfied, then each country exports the commodity which intensively uses its abundant factor. |
For example, if China is abundant in labor, it will export the labor-intensive product to the US. If the United States is capital abundant, it will export the capital-intensive product to China.
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A ritual vessel during Shang Dynasty (1766-1122 BC), long before Moses (c. 1250 BC), Smithsonian Institution. Shang traded bronze mirrors and tea. |
To prove the HO Theorem, we first need some definitions.
There are two definitions of factor abundance: absolute abundance and relative abundance.
Figure 22. Abundance in labor.
HC is abundant in capital if
Remark: Supply of y1 is positively related to p1/p2 whereas supply of y2 is negatively related to p1/p2. Thus, the relative supply y1/y2 is positively related to p1/p2. Similarly, demand for x1 is negatively related to p1/p2 whereas demand for y2 is positively related to p1/p2. Thus, the relative demand x1/x2 is negatively related to p1/p2, as shown in Figure 3. Since consumers in the two countries have identical preferences, relative demand are identical, i.e., x1/x2 = x*1/x*2 . However, while the relative supplies, y1/y2, and y*1/y*2 both positively sloped, they are not identical, as shown in (1).
The original HO Theorem, however, was expressed in terms of relative abundance.
In the HO model, a change in the terms of trade, p* = p*1/p*2, necessarily results in a change in production mix. (Input allocations change, which alters output). Thus, it is a little tricky to derive an offer curve. First, note that an increase in the price of the capital intensive good reduces the wage-rent ratio, and decreases the capital intensities of both goods. This in turn causes a change in output mix.
A trade indifference curve can be obtained from PPF and a community indifference curve. This can be shown in two steps, using a technique developed by James Meade, who received a Nobel prize in economics in 1977.
Definition: Trade Indifference curve is the locus of export-import combinations that yield the same level of utility. U(z1,z2) = U(x1 - y1,x2 - y2),
where zi > 0 (import) (negative = export). Thus, to obtain a TI, we must subtract production from the indifference curve defined on consumption.
Figure 28. Trade Indifference Curve
No need for the identical and homothetic preferences assumption.
then HC exports the labor-intensive commodity.
By the Stolper-Samuelson Theorem, p1 and w are positively related, i.e., at the origin p1/p2 < p*1/p*2 iff w/r < w*/r*.
(2 offer curves): HC, abundant in labor, exports 1, which is labor-intensive, and imports 2.
Figure 29. An Alternative Proof of HO Theorem.
Remark: Absolute or physical abundance is empirically observable. One needs to gather data on factor supplies. However, relative abundance is difficult to observe. Trade data only reveals observed prices, not the hypothetical output or input prices that would be observed under the autarky scenario. This is a weakness. For this reason, empirical tests are all based on physical abundance.
